How to begin options trading as a beginner?

Most people have some familiarity with options, either through hearing about it or participating in trading, or maybe even avoiding it entirely. Today, we will talk about how to start trading options, and this article is the first part.

This article is only a personal investment thinking record, does not constitute any investment advice, different perspectives and positions, for reference only.

In options trading, there are actually two contrasting situations. People who like it can't wait to trade options any number of times every day. People who hate it feel that the risk is too high and don't participate or even look at it. Some people participate in options trading depending on the situation to supplement their own trading. From a personal perspective, this is the best approach.

First, determine your goals for participating in options trading, as it will greatly influence your future actions, such as choosing the type of options, trading frequency, all of which are related to your goals. Therefore, before you begin, establish your goals so that you can trade more calmly in the future. Because there are many opportunities in options trading, without clear goals, it is easy to get caught up in chaotic trading; today envying Zhang San's big earnings, tomorrow envying Li Si's big earnings. With so many trading opportunities in options, being envious of everything will only make yourself more anxious, making it harder to achieve your target returns.

Secondly, options are just derivatives, so it is important to prioritize and recognize that the trend of the underlying stock has a significant impact on options. Many people are attracted to options because of the high leverage, thinking every day about which options can make money. However, the premise of trading options is to have at least a basic judgement of individual stock trends. For example, in stock trading, as long as you do not sell, and with enough time, you may possibly make up for losses, but with options, once it expires, the loss is permanent and can never be recovered. Therefore, options are accessories to stocks with an added time element. Before each trade, not only should you consider whether the individual stock can rise to the strike price, but also whether it can be achieved before the expiration date.

Of course, options can be bought and sold at any time. If engaging in day trading with options, you can overlook the impact of expiration date on option prices (if playing options expiring on the same day, especially on Fridays, safety precautions must be observed). Particularly if you are aiming to profit from market volatility, choose options with the nearest expiration date to achieve higher leverage ratios, but the volatility will also be higher. Additionally, this type of options has very high trading volume and small price spreads.

Lastly, the liquidity of US stock options is far better than leveraged options. Liquidity is fundamental in options trading; if liquidity is poor, the bid-ask spread will be very large, resulting in significant profit loss with just two buy and sell transactions. Therefore, choosing options with high liquidity is crucial. Furthermore, the closer to the expiration date, the higher the liquidity usually is.

In conclusion, let's illustrate some characteristics of options and ETFs.

For example, if you want to participate in trading the Hang Seng Index, you can choose between options and ETFs. By buying an ETF tracking the Hang Seng Index, such as the Southbound Double Short HSI (07500.HK), you can be double short on the Hang Seng Index. Similarly, with an ETF like the Southbound Double Long HSI (07200.HK), you can be double long on the Hang Seng Index, amplifying its volatility significantly. The unique feature of these two is the inherent leverage they provide without an expiry date; as long as you continue holding them, there's no risk of sudden expiration resulting in loss of capital. Additionally, leverage can enhance volatility to a certain extent, allowing for more profit from market fluctuations. If there had to be a downside, it would be the lack of sufficient leverage.

However, if you choose hang seng index options, the price of hang seng index options is very high, requiring a very high amount for each trade, which may be challenging for players with a small amount of capital, especially considering the current volatility of Hong Kong stocks, the account's volatility will be significant. In addition, the liquidity of hang seng index options is relatively ordinary, and the spreads will also be large. Of course, if you determine the right direction, the return on options trading is index-based, while the return on leveraged etfs or etfs is linear. However, the cost of linear returns will be much lower, and the cost of index returns is all or nothing.

$CSOP Hang Seng Index Daily (2x) Leveraged Product (07200.HK)$ $H-Source Holdings Ltd (HSI.CA)$ $Tesla (TSLA.US)$ $TENCENT (00700.HK)$ If you have reached this point and can no longer accept the volatility of options, I still recommend you to finish reading the post, because the downside of a product may also become its advantage. $CSOP Hang Seng Index Daily (-2x) Inverse Product (07500.HK)$